May 2006: It's now a good time to run
IN every life a little rain must fall, so they say. And if you are an investor in Sharemax or similar property syndications, I am afraid you may now be living in a winter rainfall area. The clouds they are a-gathering.
I say this not because I am some kind of financial clairvoyant with a crystal ball to the future, I am just a simple scribe observing the frantic goings-on around me. Come pensioners, widows please heed the call: your savings are in danger, you'll soon have f-all.
My father grew up on a farm and can tell when it will rain by watching the ants in the veld. When they are running around more frantic than ever to salvage what they can and cover up the holes, he knows he'll need his raincoat tomorrow. The current class of exploiters of the greedy are behaving like those ants. On the veld where money is made and lost, they are running around more frantic than ever to salvage what they can and cover up the holes.
As for you, Mr and Ms Investor and 'part owner' of shopping centres, you may not have a raincoat tomorrow. And see that soon you'll be drenched to the bone, yes the times they are a-changing.
Bob Dylan knew this long ago, he was so much older then.
Students of the financial markets soon learn that, however sophisticated the systems become, however bright the 26-year-old geniuses who run the international spider's web spun with money, the eight-legged hairy beast at its core is driven by the oldest and basest of animal emotions � fear and greed.
And more often than not the flies caught in the web are you and I, dear reader, the small investors. You don't see spiders catching other spiders.
Driven by our greed for a fast buck, we believe the fast-talking salesmen's pitch about yields beyond what everyone else is getting, about your capital being guaranteed in risky, unlisted ventures, and we close our eyes to the obvious truth of results that are too good to be true.
Then, when Friedman's reality hits that there is no free lunch, that someone always pays and that the sucker stuck with the bill is you, that's when the fear sets in and you start running. Trouble is, everybody else is running too and by the time you scrum your way to the door marked 'Sell!' it is too late.
The South African markets are not there now. They have been booming for some time and the indications are that they will continue to rise. But no market rises forever and property syndications need a rising property market to survive, because of the bubble built into their structure.
To illustrate: The syndicate bosses control a number of companies, it's called a pyramid. They use company A to buy a shopping centre at its current market value, say R50 million. Then they sell company A, with the shopping centre as its asset, to holding company B for R60 million, thereby securing a neat profit for themselves. Company B pays legal and administrative costs as well as exceptional commissions to hard-selling salespeople and, with another few million for the syndicate bosses thrown in, they syndicate it to the investing public at R75 million.
You see the bubble? You and I, together with the pensioners with lump-sum payments those salespeople love to target, pay R75 million for a property worth R50 million. This can only work if the value of the property increases by 50% to R75 million. And in the property boom of the past few years, the rising tide has indeed carried all ships � but when the momentum slows down, this kind of scheme is not sustainable and the bubble will burst. The tide does not even have to turn, it simply has to slow down.
The syndicate bosses pay interest to the investors from the rental income of the shopping centre, promising that interest receipts will grow by 10% a year. This means they have to increase the shopkeepers' rent by 10% a year. And that while inflation is below 4%. You see the credibility problem?
No wonder then that some property syndications are running around more frantic than ever to salvage what they can and cover up the holes. Look at the strange behaviour of Sharemax, a Pretoria syndication group which has made a number of people called Botha and their associates very rich.
The background is that my colleague Deon Basson has been writing for some time about the incongruities of a Sharemax investment and identifying the dangers for the investing public. The Sharemax bosses reacted with vehement denials and pressure on his editors, consistently withstood by Rikus Delport at Finweek.
The Sharemax protest show, like Shakespeare's poor player on the stage, remained at the level of strutting and fretting, signifying nothing, until January this year when Basson's arrangement with Finweek was dissolved. Within days Sharemax sued him in his personal capacity for some R20 million.
Finweek was not sued, neither was its owner, Media24, nor the listed entity Naspers, which owns the lot. It meant Basson had to hire attorneys and counsel at considerable expense to himself and instead of earning a living, he had to spend his working hours preparing court documents. Sharemax, no doubt chuffed that they had sorted out the nasty inconvenience of a journalist doing his duty, continued full steam ahead, managing to get the case placed on the roll of the Pretoria High Court surprisingly soon � Case No 3208/2006, on the roll for 24 May 2006.
Then they received Basson's answering affidavit and realised what all bullies sooner or later do: it's not nice when the victim fights back. Basson was not intimidated and he had a powerful argument. Suddenly the case disappeared from the roll of the Pretoria High Court and Sharemax is not at all in a hurry to get it back on. No no, its attorney told internet newspaper ITInews on 21 April, there is no urgency � maybe June, July, August, September, with the subsequent court action only some time next year.
No wonder. I can just imagine how the court would feel about this attempt to use it as a blunt instrument in the gagging of a journalist.
Because it can hardly be anything else. The crucial question is this: If you feel you have suffered damages of R20 million and you decide to litigate to get that R20 million back, why do you sue the one party you know full well will not be able to pay R20 million? Why don't you sue the magazine that carried the reports? Or the publisher? Or the owner? What is really your motive?
I phoned Sharemax's MD, Willem Botha, to put these questions to him. His recorded voice invited me to leave a message, which I did, giving my name, my number and stating my business. He did not return my call.
You should also know that the consumer affairs committee of the Department of Trade and Industry has called for stricter controls over property syndications, that Freedom Front Plus MP Willie Spies has raised questions about Sharemax in Parliament, that Finance Minister Trevor Manuel promised to follow up, that Sharemax was forced by the authorities to shelve plans for the sale of 19 of its companies and that the Financial Services Board has stated that Sharemax may not use claims of FSB approval to market its products.
Now you decide.
E-mail: rahila@mweb.co.za
2011
Sharemax restrictions expire in The Villa deal
The acquisition by the troubled Sharemax Group of The Villa, the partially completed R3.5 billion retail development east of Pretoria, is now unconditional.
The Villa was syndicated by Sharemax Investments and funded by about 8 000 investors.
The acquisition follows the failure of Capicol, the developer of both The Villa and the Zambezi Retail Park, to come up with an alternative solution for The Villa by August 15.
Sharemax defaulted on monthly payments to investors from September last year and construction on the Zambezi Retail Park and The Villa ground to a halt in the same month when funds due from Sharemax to Capicol dried up.
About 40 000 shareholders have invested R4.5bn through Sharemax's various property syndications.
The boards of the Sharemax syndication firms last month concluded an agreement to buy ownership of the Zambezi Mall and 80 percent of The Villa from Capicol subject to this suspensive condition.
Sharemax financial director Dominique Haese confirmed yesterday that the acquisition agreement became unconditional last week and the first 30 percent undivided share of the Villa Mall property was scheduled to be transferred to Villa Retail Park Investments from Capicol.
Haese said the board of the Sharemax syndication company was actively engaged with various interested parties about securing funding to complete the project.
"It is envisaged that such a funder would potentially require (that it) obtain a large portion of the balance of the equity in the Villa Mall in consideration for providing the required funding," she said.
Transfer of a further 50 percent undivided share in The Villa would follow in the process of the implementation of the acquisition agreement.
A Sharemax spokesman previously disclosed that some of the Sharemax firms were bankrupt and Sharemax did not have the money to pay outstanding amounts to allow the transfer of ownership of these two developments to take place.
Sharemax Investments owes R64.5 million to Capicol in terms of an arbitration award related to the Zambezi Retail Park. GD Irons Construction, the building contractor for The Villa, has a lien for more than R100m over the property for completed but unpaid work.
But Haese explained last month that the settlement agreement reached with Capicol was structured in such a way that payment to Capicol was only due "in the future".
Haese added yesterday that transfer documents in respect of the transfer of the first 50 percent undivided share in the Zambezi Mall property from Capicol to Zambezi Retail Park Investments had been finalised and transfer was expected after clearance figures had been obtained from the relevant authorities.
She said the portion of the Zambezi Mall that was due to be transferred encompassed the main shopping centre building. The balance of the properties constituting the precinct would follow in the process of implementing the acquisition agreement.
The timetable for the finalisation of the scheme of arrangement processes for the Sharemax syndication companies remained the end of next month and was achievable in terms of "current expectations and prevailing circumstances", Haese added.
Business Report
Probe into Sharemax structure concealed;
Confidential report found contraventions of Banks Act.(Business Report)
The Star (South Africa)
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September 28, 2010 | Copyright
COPYRIGHT 2009 Independent News & Media PLC. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights or concerns about this content should be directed to Customer Service..BYLINE: Roy Cokayne
A report of an investigation instigated by the registrar of banks into the activities and funding model of Sharemax Investments, the property syndications marketing company, is set to remain hidden from public scrutiny.
Michael Blackbeard, the deputy registrar of banks in the bank supervision department of the SA Reserve Bank, said yesterday that the report by the investigators was an oral report supported by correspondence and a legal opinion from senior counsel, but the report was confidential.
Blackbeard was responding to a Business Report request for a copy of the report.
Sharemax has been in the spotlight since it …
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Sharemax still owes R64.5m to Capicol; zz Zambezi investors stand to lose out, options weighed up.(Business Report)
The Star (South Africa)
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December 9, 2010 | Copyright
COPYRIGHT 2009 Independent News & Media PLC. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights or concerns about this content should be directed to Customer Service..BYLINE: Roy Cokayne
Troubled Sharemax Investments owes R64.5 million to Capicol, the developer of the Zambezi Retail Park, according to an arbitration ruling.
Capicol chief executive Paul Kyriacou said yesterday that the outcome of the arbitration left investors "in a precarious position" because Sharemax had 90 days to pay but did not know if it had the capital.
Kyriacou warned that if Sharemax did not pay Capicol, the developer would have to launch another procedure, such as a liquidation application, to obtain the amount owing.
"That will be a terrible day for shareholders (of Sharemax). It's the last thing we want to do but the builders would …
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Avocado Investments
Press Office Feature : Response to Willie Botha and Sharemax
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Company: Avocado Investments
Author: Andre Matthews
Email: editor@itinews.co.za
Posted: 09 Dec 2007
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We can’t have our supporters experience problems with the products we have on offer
Thank you for the opportunity to respond to Willie Botha’s letter. Considering the fact that Willie believes the best approach to the problem is to cast suspicion on my independence, I think I need to address this first.
Avocado is an independent financial services group made up of an asset management company (AIM), a financial services distribution company (ADS) and an IT company (AIT). I launched it as a broker and, over time, developed a vision to grow Avocado to become a meaningful player in the financial services industry.
The question was how to penetrate the market? Our funds’ performances were good, of course, but so were our competitors’. What additional competitive edge could we bring to the table?
One thing I have often noticed was that several of the big players underestimate the importance of the broker community. Of course, the brokers get taken on holidays, meals, etc. but we think we have something far better to give.
We believe that empowering the broker (teaching him to fish rather than giving a fish) will go much further, as his skills will improve and he will be more competitive with all the financial and emotional benefits that flow from that.
If Avocado could help the brokers to become better “fishermen”, both the brokers and Avocado will be able to extract value from the relationship. The brokers would become highly capable, confident and the natural progression will be stronger business flows for them and for Avocado. That is first prize!!
Though we have many friends in the industry, we don’t have time to write articles on their behalf. We have our own dream, our own vision, and we are going after it! We see it, taste it, smell it and we want it! And the joy of it is we can add value to the lives of others while doing it.
So the articles on global growth, Sharemax, market volatility, “knock absorption” etc. are for the brokers and through them, for Avocado. We have written over 100 reports, notes, opinions, etc. and only two (we think) about Sharemax.
As to Mr Botha’s claim that ADS (our distribution arm) was remunerated by Dividend Investments in the past, it is absolutely true. It is also true that ADS now receives distribution fees from Capital Investments (from the merger between Dividend Investments and City Capital), Cadiz, BOE, Blue Ink and Avocado Investment Managers.
What is suspicious about that?
Had we taken up the offer by their marketing manager, Mr Evert Laubscher, 4 weeks ago to distribute their product, ADS would be earning fees from Sharemax as well. In order to grow, we must generate money as best we can and Capital Investments don’t offer property investments below R100 000.
This fact was conveyed to Mr Laubscher. We want distribution rights for smaller investments. However, if we want to achieve our goals, we can’t have our supporters experience problems with the products we have on offer and, considering our view on the latest Zambezi offering, how could we accept a contract?
That aside, to suggest that we are writing about them because we are distributing the products of Capital Investments, who we believe has a far superior product, is silly. You don’t see us writing letters about Blue Ink, Cadiz, or BOE’s competitors, do you?
I see words like “cheap” and “untrue” (I recall a reference to “idiotic” in a previous letter), but I will rather stick to the facts. No matter how hard I try, I can’t equate illustrating our thought processes to brokers a marketing campaign. Then, claiming that I could not make a balanced conclusion without talking to Sharemax was even more confusing.
Isn’t it more sensible to make conclusions from the actual documents (prospectus) provided by the company? In fact, the company makes a big thing about its prospectus and claims others, who don’t have, or can’t have due to legislation, such a document should not be trusted.
Furthermore, considering the threats Sharemax issues to any who question them, would my findings not have been exposed to the risk that Sharemax may have had time to get an interdict to keep me quiet? Also, is message now conveyed that the facts we based the analysis on (from the prospectus) are wrong and there is another version?
It is claimed that my sources are not mentioned. The analysis clearly refers to the Prospectus and Rode & Associates’ opinion of the place, both of which can be accessed on the ITInews website.
Many people know who Erwin Rode is, though I don’t know him personally, but I read thousands of pages of economic research from SA and around the globe year and, if a property economist is involved, Erwin Rode’s opinion is the opinion sought.
Only 3 weeks ago Cees Bruggemans (Chief Economist at FNB and highly respected in SA) had a round table meeting with economists from a range of sectors in SA and Erwin Rode represented property.
In light of the sources I used (Rode and Sharemax’s prospectus) one may find it hard to agree with an assessment which claims that “one must therefore assume that he has pulled most of his conclusions from the air”.
I have studied the “answers to draw a picture of the incorrect assumptions”. Suffice to say that my report was not studied as carefully, as the response was not appropriate for the issues dealt with. The sources of my data is there all to see on the ITInews website, while enough calculations to support our opinion appear on Moneyweb’s site.
Also, there seems to is no sense in talking about Menlyn in Pretoria, or any other place for that matter, as the evaluation by Rode and Associates is about Zambezi Retail Park. Not a “for instance”, but the very same place.
I wish to point out that point 4.3.2.1 clearly states the cap rate is 9.8% and not the 10.4% referred to now. Furthermore, I do not know Capicol, nor do the brokers or investors. All I know is that its website www.capicol.com (as I recall), clearly shows that they have dealt with Zambezi 1& 2, as well as being busy with their first big project.
Assuming that Capicol is great, how can one justify risking investors’ money and giving them nothing in return? Capicol does not even pay prime, but prime less 4.5%. The investing community trust the financial services industry to look after their interests. I think it is silly to refer to me being as “unethical” for raising this very valid issue.
The facts are there for all to see in the prospectus. However, using its existence as some sort of defence or justification makes no sense. The reference to an external auditor helps as little as the national rental data is outside his field of experience.
Common sense dictates that we rather take Rode & Associates’ opinion as to what the appropriate mix between nationals and line shops are across SA, what the rate per square meter should be, etc.
As to an apparent parting gift of “we reserve our rights to further handle Andre Matthews’s modus operandi in the forum of our choice”, I advise that we did what our principle of empowering the broker (which includes protecting him against future claims from his clients) demands and my job is done.
I have more important things to do than to keep warning the warned. Be that as it may, I don’t know what was intended with the above statement, but we are not overly concerned.
I repeat that there is no marketing campaign. Nor are we watching specific companies all the time. Issues are studied at random, or upon request from a broker/s, with the purpose of establishing a relationship of trust with brokers and to show them how we think.
The more they read, the sharper they become. This will create a level confidence that improves their hit rate. Over time, that will reflect in Avocado’s growth.
In closing, and as evidence that our loyalty to brokers’ welfare drives us rather than Mr Botha’s referral to remuneration from the earlier Dividend Investments and current Capital Investments, I invite any who doubts me to phone Mr Chris Sickle of Ernst & Young in Cape Town to confirm the following:
Avocado obtained agreement from Capital Investments to appoint our own independent auditors, rather than using their BDO Spencer, to do a monthly check on a host of activities.
This includes a detailed check on the entire property acquisition process, the disposal of properties, as well as certain managerial responsibilities of the directors to the property portfolio.
I don’t wish to bore readers with the details, but it is very comprehensive and aimed at ensuring the protection of investors (and through that brokers) as best one can.
Anyone wishing for details of that list, which will be constantly updated upon the suggestions of Ernst & Young and/or Avocado, may request it from Avocado at andrem@avocado-investments.com or may look up Ernst & Young’s number in Cape Town and speak to Mr Sickle himself.
Ernst & Young have issued a media statement with regard to the above. Please read Correction of factual inaccuracies in "Response to Willie Botha and Sharemax"
Comments: Rudolph: Sharemax 53 Projects, 19 Projects sold 100% Track Record (10.12.2007 17:21)
